Knife-Edge or Plateau: When Do Market Models Tip?
AbstractThis paper studies whether agents must agglomerate at a single location in a class of models of two-sided interaction. In these models there is an increasing returns effect that favors agglomeration, but also a crowding or market-impact effect that makes agents prefer to be in a market with fewer agents of their own type. We show that such models do not tip in the way the term is commonly used. Instead, they have a broad plateau of equilibria with two active markets, and tipping occurs only when one market is below a critical size threshold. Our assumptions are fairly weak, and are satisfied in Krugman's model of labor market pooling, a heterogeneous-agent version of Pagano's asset market model, and Ellison, Fudenberg, and MÃ¶bius' model of competing auctions.
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Bibliographic InfoPaper provided by Harvard University Department of Economics in its series Scholarly Articles with number 3160493.
Date of creation: 2003
Date of revision:
Publication status: Published in Quarterly Journal of Economics
Other versions of this item:
- Glenn Ellison & Drew Fudenberg, 2003. "Knife-Edge or Plateau: When do Market Models Tip?," Levine's Working Paper Archive 506439000000000098, David K. Levine.
- Glenn Ellison & Drew Fudenberg, 2003. "Knife Edge of Plateau: When Do Market Models Tip?," NBER Working Papers 9528, National Bureau of Economic Research, Inc.
- R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
- G1 - Financial Economics - - General Financial Markets
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